Neobanks have disrupted the banking scene in established markets in recent years, seeking to offer a convenient and frictionless experience. As well as challenging the established finance system, for emerging markets, where much of the population is underbanked, neobanks can serve as a vital conduit to greater financial inclusion.
To gain an understanding of developments with neobanks, Digital Journal caught up with Cecilia Tamez, chief strategy officer of Money Transfer Systems for Euronet/Dandelion.
Digital Journal: What is a neobank?
Cecilia Tamez: A neobank is an institution that offers financial services exclusively online through a website and/or mobile app. Some of the services they offer include mobile wallets, digital payments and money transfers, multi-currency accounts, bill payments, check deposits, and physical cards. In established markets, they can offer a convenient, frictionless experience, and in emerging markets, can serve as a vital conduit to greater financial inclusion.
DJ How are neobanks different from traditional banks?
Tamez: Neobanks offer an alternative digital option to traditional banking services. They target digitally savvy customers who prefer a digital-only experience, often through aggressive, targeted advertising and marketing.
Compared to traditional banks, neo-banks offer a number of unique benefits, including reduced fees (e.g. monthly account fees, transaction fees, ATM fees), a frictionless digital experience, and the ability to bank without visiting a physical branch. In established markets like the United States, neo-banks can offer nearly the same range of services as a traditional bank, and can be linked to a customer’s traditional bank account.
In emerging markets, where a large portion of the population is traditionally underbanked and reliant on cash, neo-banks can also be complemented with brick and mortar storefronts to fund wallets and bridge the gap to a more convenient digital experience. For example, The India Stack sought to enable neo-banks that would equip a large underbanked population with digital wallets, effectively creating a “bank account light” experience. It was transformational, and India’s population went from 17% banked in 2009 to 80% today as a result. Kenya has also leveraged neo-banks effectively, and today 96% of Kenyan households have access to a mobile wallet.
DJ: What are some of the pros and cons of using a neobank?
Tamez: The pros and cons of a neobank are in many ways dependent on their audiences. Benefits like digital convenience, lower fees, and instance access to credit and debit accounts often appeal to younger, more digitally savvy audiences.
Conversely, those less comfortable with technology who rely on high touch customer service – typically an older, more established audience – may prefer the benefits of traditional banks. Neo-banks also have limits, including lack of mortgage and lending services, and branch-specific services like cashier’s checks and money orders.
DJ: How should consumers vet a neobank before choosing one?
Tamez: Choosing a neo-bank is much like choosing any digital service today. Reputation is paramount, and where most neo-banks are app-based, the first place to start is often in app store user reviews and ratings. For more in-depth evaluation, the Consumer Financial Protection Bureau maintains a complaint database for financial products and services where anyone can conduct their own investigations. As with any service, digital or otherwise, Google is often the best place to start. A bad review or scandalous headline is usually enough of a red flag to seek another option.
